The 2016 Social Security Trustees Report has been a long time coming. Usually it is released in the spring (although last year it wasn’t released until July), but I can’t say I blame the Trustees for the delay. It looks bad. Worse than last year. The program that pays yours and my retirement benefits, either now or eventually, is facing a $32.1 trillion shortfall into the future, up from $25.8 trillion in 2015. (For additional information on demographic and economic assumptions used to calculate unfunded liabilities, see here and here. I believe that some of the assumptions are questionable, particularly long-term interest rates.) Last year’s Social Security Trustees Report concluded that the “trust fund” will be depleted in 2034 and that remains unchanged. However, the disability portion of the trust fund, which was scheduled to be depleted at the end of this year, will now remain solvent until 2023. How can this be? If you recall earlier this year, Congress authorized about a half percent of the payroll tax to be allocated away from retirement benefits to disability benefits for the next two years to shore up the disability trust fund. No real reforms, just a shell game. Yep, on the Titanic of entitlement spending, we’re just rearranging the deck chairs.
For those of you who may not be familiar with the trust fund, there really is no trust fund. The extra payroll tax revenue that has been collected in excess of retirement benefit payouts was originally supposed to be saved and invested for later years. But that money is not being invested at all. It is (legally) being spent on other programs. So when the trust fund is depleted, it simply means that the money being enjoyed by other government programs that was originally meant for Social Security will dry up, and monies have to come from somewhere, either tax increases or Social Security benefit cuts. (As an aside, boys and girls, did you know that misappropriation of trust funds by a private trustee is a crime that can carry fines and/or prison time? But evidently Congress gets a pass.)
For years, NCPA scholars have recommended a number of reforms to the Social Security system, such as supplementing it with personal retirement accounts, providing partial payments in the disability insurance program and even personal disability accounts. The time to act is now.
Note: The Medicare Trustees report is also available and will presumably be addressed by one of my health policy colleagues. It has its own set of problems.